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70. Internal control policies and procedures have limitations including:
A. Human error.
B. Human fraud.
C. Cost-benefit principle.
D. Collusion.
E. All of the options are limitations.
71. Internal control systems are:
A. Developed by the Securities and Exchange Commission for public companies.
B. Developed by the Small Business Administration for non-public companies.
C. Developed by the Internal Revenue Service for all U.S. companies.
D. Required by Sarbanes-Oxley (SOX) to be documented and certified if the company’s stock is
traded on an exchange.
E. Required only if a company plans to engage in interstate commerce.
72. Cash, not including cash equivalents, includes:
A. Postage stamps.
B. Coins, currency, and checking accounts.
C. IOUs.
D. Two-year certificates of deposit.
E. Money market funds.
73. Cash equivalents:
A. Are short-term, highly liquid investment assets.
B. Include 6-month CDs.
C. Include checking accounts.
D. Are recorded in petty cash.
E. Include money orders.
74. Cash equivalents:
A. Include savings accounts.
B. Include checking accounts.
C. Are short-term investments sufficiently close to their maturity date that their value is not
sensitive to interest rate changes.
D. Include time deposits.
E. Have no immediate value.
75. Cash equivalents:
A. Are readily convertible to a known cash amount.
B. Include short-term investments purchased within 3 months of their maturity dates.
C. Have a market value that is not sensitive to interest rate changes.
D. Include short-term U.S. treasury bills.
E. All of the choices are cash equivalents.
76. The following information is available for Holland Company at December 31:
Money market fund balance
$ 2,790
Certificate of deposit maturing June 30 of next year
$15,000
Postdated checks from customers
$ 1,475
Cash in bank account
$22,431
NSF checks from customers returned by bank
$ 650
Cash in petty cash fund
$ 200
Inventory of postage stamps
$ 18
U.S. Treasury bill purchased on December 15 and maturing on
February 28 of following year
$10,000
Based on this information, Holland Company should report Cash and Cash Equivalents on
December 31 of:
A. $35,421
B. $50,421
C. $37,546
D. $36,246
E. $40,439
77. The following information is available for Johnson Manufacturing Company at June 30:
Cash in bank account
$ 6,455
Inventory of postage stamps
$ 74
Money market fund balance
$12,400
Petty cash balance
$ 350
NSF checks from customers returned by bank
$ 867
Postdated checks received from customers
$ 391
Money orders
$ 257
A nine-month certificate of deposit maturing
on December 31 of current year
$ 8,000
Based on this information, Johnson Manufacturing Company should report Cash and Cash
Equivalents on June 30 of:
A. $15,062
B. $20,146
C. $20,072
D. $19,205
E. $19,462
78. Basic bank services include:
A. Bank accounts.
B. Bank deposits.
C. Checking.
D. Electronic funds transfer.
E. All of the choices are basic bank services.
79. A check involves three parties:
A. The writer, the cashier, and the bank.
B. The maker, the payee, and the bank.
C. The maker, the manager, and the payee.
D. The bookkeeper, the payee, and the bank.
E. The signer, the cashier, and the company.
80. A remittance advice is:
A. An explanation for a payment by check.
B. A bank statement.
C. A voucher.
D. An EFT.
E. A cancelled check.
81. A bank statement includes:
A. A list of outstanding checks.
B. A list of petty cash amounts.
C. The beginning and the ending balance of the depositor’s account.
D. A listing of deposits in transit.
E. All of the choices are included on the bank statement.
82. For which item does a bank NOT issue a debit memorandum?
A. To notify a depositor of all withdrawals through an ATM.
B. To notify a depositor of a fee assessed to the depositor’s account.
C. To notify a depositor of a uncollectible check.
D. To notify a depositor of periodic payments arranged in advance, by a depositor.
E. To notify a depositor of a deposit to their account.
83. Preparing a bank reconciliation on a monthly basis is an example of:
A. Establishing responsibility.
B. Separation of duties.
C. Protecting assets by proving accuracy of cash records.
D. A technological control.
E. Poor internal control.
84. The number of days’ sales uncollected:
A. Is used to evaluate the liquidity of receivables.
B. Is calculated by dividing accounts receivable by sales.
C. Measures a company’s ability to pay its bills on time.
D. Measures a company’s debt to income.
E. Is calculated by dividing sales by accounts receivable.
85. The days’ sales uncollected ratio is used to:
A. Measure how many days of sales remain until the end of the year.
B. Determine the number of days that have passed without collecting on accounts receivable.
C. Identify the likelihood of collecting sales on account.
D. Estimate how much time is likely to pass before the amount of accounts receivable is received
in cash.
E. Measure the amount of layaway sales for a period.
86. The number of days’ sales uncollected is calculated by:
A. Dividing accounts receivable by net sales.
B. Dividing accounts receivable by net sales and multiplying by 365.
C. Dividing net sales by accounts receivable.
D. Dividing net sales by accounts receivable and multiplying by 365.
E. Multiplying net sales by accounts receivable and dividing by 365.
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87. The number of days’ sales uncollected:
A. Measures how much time is likely to pass before the current amount of accounts receivable is
received in cash.
B. Can be used for comparisons to other companies in the same industry.
C. Can be used for comparisons between current and prior periods.
D. Reflects the liquidity of receivables.
E. All of the options are correct.
88. A company had net sales of $31,500 and ending accounts receivable of $2,700 for the current
period. Its days’ sales uncollected equals:
A. 11.7 days.
B. 23.3 days.
C. 31.3 days.
D. 42.5 days.
E. 46.6 days.
89. Maxtel had net sales of $4,235 million and ending accounts receivable of $775 million. Its
days’ sales uncollected equals:
A. 298 days.
B. 66.8 days.
C. 19.4 days.
D. 81.8 days.
E. 65.2 days.
90. The following information is taken from Hogan Company’s December 31 balance sheet:
Cash and cash equivalents
$ 8,419
Accounts receivable
70,422
Merchandise inventories
60,362
Prepaid expenses
4,100
Accounts payable
$ 14,950
Notes payable
86,638
Other current liabilities
9,500
If net credit sales and cost of goods sold for the current year were $612,000 and $367,200,
respectively, the firm’s days’ sales uncollected for the year is:
A. 60 days
B. 85 days
C. 42 days
D. 154 days
E. 70 days
91. An income statement account that is used to record cash overages and cash shortages arising
from petty cash transactions or from errors in making change is titled:
A. Cash Lost.
B. Bank Reconciliation.
C. Petty Cash.
D. Cash Over and Short.
E. Cash Receivable.
92. A set of procedures and approvals designed to control cash disbursements and the acceptance
of obligations is referred to as a(n):
A. Internal cash system.
B. Petty cash system.
C. Cash disbursement system.
D. Voucher system.
E. Cash control system.
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93. Internal control procedures for cash receipts require that:
A. Custody over cash is kept separate from its recordkeeping.
B. Cash sales should be recorded on a cash register at the time of each sale.
C. Clerks having access to cash in a cash register should not have access to the register tape or
file.
D. An employee (with no access to cash receipts) should compare the total cash recorded by the
register with the record of cash receipts reported by the cashier.
E. All of the choices are required internal control procedures for cash receipts.
94. The Cash Over and Short account:
A. Is used to record a credit balance in the cash account.
B. Is an income statement account used for recording the income effects of cash overages and
cash shortages from errors in making change and/or from errors in processing petty cash
transactions.
C. Is not necessary in a computerized accounting system.
D. Can never have a debit balance.
E. Can never have a credit balance.
95. The voucher system of control:
A. Is a set of procedures and approvals designed to control cash receipts and the acceptance of
obligations.
B. Establishes procedures for verifying, approving, and recording obligations for eventual cash
disbursement.
C. Establishes procedures for receiving checks for the sale of verified, approved, and recorded
activities.
D. Applies only when multiple purchases are made from the same supplier.
E. All of the choices are correct regarding a voucher system of control.
96. A voucher is an internal file:
A. Prepared after an invoice is received.
B. Used as a substitute for an invoice.
C. Used to accumulate information needed to control cash disbursements and to ensure that
transactions are properly recorded.
D. Takes the place of a bank check.
E. Prepared before the company orders goods.
97. Which of the following procedures would weaken control over cash receipts that arrive
through the mail?
A. After the mail is opened, a list (in triplicate) of the money received is prepared with a record
of the sender’s name, the amount, and an explanation of why the money is sent.
B. The bank reconciliation is prepared by a person who does not handle cash or record cash
receipts.
C. For safety, only one person should open the mail, and that person should immediately deposit
the cash received in the bank.
D. The cashier should not also be the record keeper who records the amounts received in the
accounting records.
E. All of these are good internal control procedures over cash receipts that arrive through the
mail.
98. At the end of the day, the cash register’s record shows $1,250, but the count of cash in the
cash register is $1,245. The correct entry to record the cash sales is
A. Debit Cash $1,245; Credit Sales $1,245.
B. Debit Cash $1,245; debit Cash Over and Short $5; credit Sales $1,250.
C. Debit Cash $1,250; credit Sales $1,250.
D. Debit Cash $1,250; credit Sales $1,245, credit Cash Over and Short $5.
E. Debit Cash Over and Short $5, credit Sales $5.
99. At the end of the day, the cash register tape shows $1,000 in cash sales but the count of cash
in the register is $1,035. The proper entry to account for this excess includes a:
A. Credit to Cash for $35.
B. Debit to Cash for $35.
C. Credit to Cash Over and Short for $35.
D. Debit to Cash Over and Short for $35.
E. Debit to Petty Cash for $35.
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100. A key factor in a voucher system is:
A. Only approved departments and individuals are authorized to incur an obligation that will
result in the payment of cash.
B. Procedures for purchasing, receiving and paying for merchandise are divided among several
departments.
C. The system limits the individuals that can incur cash payment obligations for a company.
D. It should be applied to all expenses.
E. All of the choices are key factors in a voucher system.
101. The entry necessary to establish a petty cash fund should include:
A. A debit to Cash and a credit to Petty Cash.
B. A debit to Cash and a credit to Cash Over and Short.
C. A debit to Petty Cash and a credit to Cash.
D. A debit to Petty Cash and a credit to Accounts Receivable.
E. A debit to Cash and a credit to Petty Cash Over and Short.
102. The entry to record reimbursement of the petty cash fund for postage expense should
include:
A. A debit to Postage Expense.
B. A debit to Petty Cash.
C. A debit to Cash.
D. A debit to Cash Short and Over.
E. A debit to Supplies.
103. When a petty cash fund is in use:
A. Expenses paid with petty cash are recorded when the fund is replenished.
B. Petty Cash is debited when funds are replenished.
C. Petty Cash is credited when funds are replenished.
D. Expenses are not recorded.
E. Cash is debited when funds are replenished.
104. In reimbursing the petty cash fund:
A. Cash is debited.
B. Petty Cash is credited.
C. Petty Cash is debited.
D. Appropriate expense accounts are debited.
E. No expenses are recorded.
105. Assume that the custodian of a $450 petty cash fund has $62.50 in coins and currency plus
$382.50 in receipts at the end of the month. The entry to replenish the petty cash fund will
include:
A. A debit to Cash for $377.50.
B. A credit to Cash Over and Short for $5.00.
C. A debit to Petty Cash for $382.50.
D. A credit to Cash for $387.50.
E. A debit to Cash for $387.50.
106. A company plans to decrease a $200 petty cash fund to $75. The current balance in the
account includes $45 petty cash payment in receipts and $165 in currency. The entry to reduce
the fund will include a:
A. Debit to Cash Short and Over for $10.
B. Debit to Cash for $90.
C. Debit to Miscellaneous Expenses for $35.
D. Credit to Petty Cash for $165.
E. Credit to Cash for $90.
107. A company had $43 missing from petty cash that was not accounted for by petty cash
receipts. The correct procedure is to:
A. Debit Cash Over and Short for $43.
B. Credit Cash Over and Short for $43.
C. Debit Petty Cash for $43.
D. Credit Petty Cash for $43.
E. Credit Cash for $43.
108. Martha Company has an established petty cash fund in the amount of $500. The fund was
last reimbursed on November 30. At the end of December, the fund contained the following
petty cash receipts:
December 4 Freight charge for merchandise purchased $ 42
December 7 Freight charge for delivery to customer $ 66
December 12 Purchase of office supplies $ 31
December 18 Donation to charitable organization $ 50
If, in addition to these receipts, the petty cash fund contains $301 of cash, the journal entry to
reimburse the fund on December 31 will include:
A. A debit to Transportation-In of $73.
B. A debit to Transportation-Out of $73.
C. A credit to Office Supplies of $66.
D. A credit to Cash Over and Short of $10.
E. A debit to Cash Over and Short of $10.
109. An analysis that explains any differences between the checking account balance according
to the depositor’s records and the balance reported on the bank statement is a(n):
A. Internal audit.
B. Bank reconciliation.
C. Bank audit.
D. Trial reconciliation.
E. Analysis of debits and credits.
110. On a bank reconciliation, an unrecorded debit memorandum for printing checks is:
A. Noted as a memorandum only.
B. Added to the book balance of cash.
C. Deducted from the book balance of cash.
D. Added to the bank balance of cash.
E. Deducted from the bank balance of cash.
111. Outstanding checks refer to checks that have been:
A. Written, recorded, sent to payees, and received and paid by the bank.
B. Written and not yet recorded in the company books.
C. Held as blank checks.
D. Written, recorded on the company books, sent to the payee, but have not yet been paid by the
bank.
E. Issued by the bank.
112. On a bank reconciliation, the amount of an unrecorded bank service charge should be:
A. Added to the book balance of cash.
B. Deducted from the book balance of cash.
C. Added to the bank balance of cash.
D. Deducted from the bank balance of cash.
E. Noted in memorandum form only.
113. A check that was outstanding on last period’s bank reconciliation was not among the
cancelled checks returned by the bank this period. As a result, in preparing this period’s
reconciliation, the amount of this check should be:
A. Added to the book balance of cash.
B. Deducted from the book balance of cash.
C. Added to the bank balance of cash.
D. Deducted from the bank balance of cash.
E. Ignored in preparing the period’s bank reconciliation.